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Cartels are "the supreme evil of antitrust."(2)
The fixing of prices, bids, output, and markets by cartels has no plausible
efficiency justification; therefore, antitrust authorities properly
regard cartel behavior as per se illegal or a "hard core" violation
of the competition laws. While recognition of the dangers posed by cartels
has reached something close to an international consensus, it is not
enough merely to label cartels as harmful; cartelists have proven resistant
to powers of persuasion or shame, perhaps because the anticompetitive
rents available through cartel behavior can be so large. Cartels can
only be deterred through vigorous prosecution.

The United States has long experience prosecuting cartels and its
efforts have yielded solid results. Some of those results are quantifiable:
in fiscal years 2004 and 2005, and so far in 2006, the Antitrust Division
of the Department of Justice has obtained fines of $350 million, $338
million, and $467.5 million, respectively, and has brought criminal
cases against 63 firms. Some of the results are less tangible, but no
less real: the Division has uncovered evidence that some cartelists
choose to compete in the United States, even while continuing cartel
behavior in other nations, due to the fear of U.S. prosecution. The
success of the United States model leads me to offer the following set
of useful practices for the detection and prosecution of cartels.

The Antitrust Division's anti-cartel enforcement program has been
built over many years of dedicated effort. Based on our experience,
each of the following seven practices has contributed to the success
of the program: (i) focus prosecutors on "hard core" collusive activity;
(ii) treat cartels as serious crimes; (iii) provide an amnesty program
and "amnesty plus"; (iv) vigorously prosecute obstruction of justice;
(v) charge cartels in conjunction with other offenses; (vi) provide
transparency and predictability; and (vii) publicize these enforcement
efforts.

Focus Prosecutors on "Hard Core" Cartel Activity

The most important step in prosecuting cartels, and particularly in
deterring them, is to make clear to all that anti-cartel enforcement
is a priority. While this can be done in myriad ways, the United States
chiefly relies on two strategies. First, we have separated criminal
from civil enforcement, permitting a group of our attorneys to focus
solely on cartels. Second, we have declared anti-cartel enforcement
to be the highest priority in an explicit enforcement hierarchy.(3)

As to the first point, the separation of criminal and civil antitrust
cases has a long history at the Department of Justice but the separation
of attorneys into criminal and civil sections is a relatively recent
development. During the first hundred years of U.S. antitrust enforcement,
the same attorneys often would investigate both a criminal and a civil
theory in the early stages of a case. Even in the early 1990s -- and
even after the Antitrust Division's attorneys were organized into sections
based on industry segments or legal topics -- most sections had the
ability to bring both criminal and civil cases. This changed in 1994,
when the Antitrust Division reorganized to create a separate criminal
group. After further refinement, the current criminal enforcement organization
of the Antitrust Division is: a front office Deputy for Criminal Enforcement
(Scott Hammond); his second in command, the Director for Criminal Enforcement
(Marc Siegel), and eight offices dedicated to anti-cartel work and located
in Atlanta, Chicago, Cleveland, Dallas, New York, Philadelphia, San
Francisco, and Washington, DC. All told, we devote roughly 40% of the
Antitrust Division's attorneys to criminal enforcement.

Does this organization make a difference? We believe that it does.
People matter, and the creation of a specialized criminal enforcement
team allows us to attract, train, and retain people whose passion is
criminal enforcement. From the leadership to the line attorneys, our
criminal enforcers are immersed in criminal law issues: they share practical
advice with other prosecution branches of the government; they work
closely with the United States Attorneys responsible for federal criminal
enforcement in each U.S. judicial district; they spend time on "details"
(temporary duty assignments) as prosecutors in other Department components;
they work with and learn investigatory skills from such entities as
the Federal Bureau of Investigation; and in short, they live and breathe
criminal law. There is a great benefit to the criminal side's targeted
focus.(4)

At the same time, the Division carefully delimits its criminal enforcement
to focus only on hard core violations. The higher burden of proof in
criminal cases (requiring proof "beyond a reasonable doubt," as opposed
to the "preponderance of the evidence" standard used in United States
civil law) and the narrowness of what criminal enforcement condemns
(the fixing of prices, bids, output, and markets, as opposed to the
"rule of reason" or monopolization analyses used in civil antitrust
law) establish clear, predictable boundaries for business. In addition,
this narrow focus helps conserve prosecution and judicial resources
by reducing the number of potential cases and also by reducing the complexity
of proof: the focus on collusion largely removes the need for the detailed
economic testimony common in civil antitrust actions. When criminal
cases focus on conduct that has no plausible business justification
and that usually occurs in secret, accompanied by preemptive coverups
and misrepresentation, defendants cannot reasonably argue that they
failed to grasp the illegality of their actions.(5)
All of these features -- high burdens of proof, well-defined coverage,
clear boundaries -- allay the potential fears of law-abiding business
persons, who can easily determine whether their own conduct will form
the basis of a criminal case.(6)

My second point, our decision to make anti-cartel enforcement the
highest priority in our antitrust hierarchy, is also a useful signal
to industry. To be sure, we continue vigorously to protect competition
in the areas of mergers and non-merger civil conduct, but we give special
emphasis to cartel enforcement. The antitrust hierarchy also means that
we have aligned enforcement priorities with our level of certainty about
consumer harm: cartels are always harmful to consumers, whereas mergers
and non-merger civil conduct are sometimes harmful but other times will
lead to greater efficiencies that enhance consumer welfare. In the areas
of mergers and non-merger civil conduct, antitrust enforcers need to
account for the possibility of false positives, meaning the assumption
of anticompetitive effects where, in fact, none exist or where the potential
anticompetitive effects are outweighed by pro-consumer benefits. The
antitrust hierarchy helps enforcers to avoid deterring businesses from
good, hard competition.

I have heard the view that anti-cartel enforcement is too difficult
for agencies that are relatively new to antitrust enforcement and that
such agencies should concentrate only upon civil enforcement until they
develop experience. I respectfully disagree. It is preferable to begin
the anti-cartel process -- even if one must learn from a few missteps
along the way -- than to let cartels function unimpeded, harming consumers.
And as for the view that an agency in its early years should concentrate
on civil conduct because such conduct is easier to find, this view reminds
me of the man who, after a night of drinking, had lost his keys. A policeman
finds the man searching unsuccessfully for the keys under a street lamp.
The policeman, who also does not find the keys, asks "Are you sure you
lost them here?" The man replies "Oh no, I lost them in that dark alley,
but the light is much better for searching right here." While conduct
subject to civil investigations might be more open and therefore easier
to see, the most consumer harm is to be found in the dark alleys of
criminal cartels. Moreover, to take the analogy one step further, even
though conduct in civil investigations might be easier to spot, discerning
whether such conduct is beneficial or harmful to consumer welfare can
be difficult, so things in the "light" might not be so clear after all.

Treat Cartels as Serious Crimes, and Cartel Members as Criminals

The penalty for cartel behavior should fit the crime. Penalties should
reflect the fact that cartels inflict enormous consumer harm(7)
with no likelihood of corresponding efficiency gains. Penalties should
also take into account the facts that cartelists' motivation is strictly
financial and that cartelists are quite capable of making a cost/benefit
decision that factors in an occasional discovery and fine as a cost
of doing their illegal business. Therefore, cartel penalties not only
should be large enough to remove financial incentives, but also should
look past financial incentives to affect cartelists directly: cartel
penalties should include substantial jail time for responsible individuals.
Our investigators have found that nothing in our enforcement arsenal
has as great an effect as the threat of substantial incarceration in
a United States prison -- nothing is a greater deterrent and nothing
is a greater incentive for a cartelist, once exposed, to cooperate in
the investigation of his co-conspirators.

Penalties are vitally important but so too are other elements of the
criminal enforcement arsenal. Cartelists should be subjected to the
same investigatory and apprehension practices that we apply to other
suspected financial felons. This includes the use of the full range
of criminal investigatory techniques (from search warrants to the use
of informers wearing recording devices), the use of Interpol "Red Notices"
and border watches, and extradition. Our criminal enforcement attorneys
tell us that it is particularly important to use investigators trained
specifically for criminal analysis, who on a weekly basis practice such
techniques as criminal interrogation, forensics, and detection of corporate
fraud, and who are comfortable operating in an environment in which
they must assume that defendants might engage in evasion and the destruction
of evidence. Criminal investigations are qualitatively different from
most civil investigations, so it is wise to approach them from the outset
with the assistance of dedicated criminal investigatory staff. Finally,
coordination between international enforcement agencies is a particularly
important priority in criminal investigations, due to the difficulty
of detection, likelihood of evidence destruction, and risk of flight.

The United States recently strengthened its laws against criminal
cartels to reflect some of the principles mentioned here. The Antitrust
Criminal Penalty Enhancement and Reform Act of 2004 (ACPERA)(8)
more than tripled the maximum jail term available under the Sherman
Act, from three years to ten years, and increased the Division's ability
to seek substantial criminal fines. In November 2005, the United States
Sentencing Commission increased the penalties allowed under the antitrust
guideline, United States Sentencing Guidelines § 2R1.1, taking
into account both the revised Sherman Act maximum jail sentence and
recent experience with the enormous volumes of commerce affected by
international cartels.(9) The maximum
jail term under § 2R1.1 is now nine years and a longer term
is possible via adjustments from other guidelines sections, such as
the "role in the offense" enhancement. While § 2R1.1 is not mandatory,
courts are required to consider it when rendering judgment against criminal
antitrust defendants.(10) More recently,
the United States also amended its investigatory statutes to provide
wiretap authority in criminal antitrust investigations.(11)
Congress's decision to grant that power is a signal that the United
States places antitrust crimes on par with such other significant economic
crimes as bribery, bank fraud, and mail and wire fraud.

The United States has for some years made it a priority to obtain
prison sentences for cartel participants wherever they reside. In our
international cartel investigations, we have negotiated plea agreements
with 27 foreign nationals to serve time in U.S. prisons. Also on this
front, the United States has for the first time moved to extradite a
criminal antitrust defendant. In June 2005, in The Government of
the United States of America v. Ian P. Norris, a United Kingdom
magistrates' court found a British national to be extraditable on a
U.S. antitrust charge. On February 24, 2006, the High Court rejected
one appeal by the defendant. At the time of this writing, additional
appeals are still pending. The United States's efforts in the Norris
case should send a powerful signal that cartelists will not be
allowed to hide behind borders.

Provide Amnesty and Amnesty Plus

Although there are many reasons to create amnesty programs, by far
the greatest is their value to detection. It is notoriously difficult
to discover cartel behavior or, once discovered, to compile sufficient
evidence to successfully prosecute cartel members in court. As one past
Justice Department official noted, "[t]he most startling characteristic
of the multinational cartels we have prosecuted is how cold blooded
and bold they are. *** [T]hey [go] to great lengths to cover up their
actions -- such as using code names with one another, meeting in secret
venues around the world, creating false 'covers' -- i.e., facially legal
justifications -- for their meetings, using home phone numbers to contact
one another, and giving explicit instructions to destroy any evidence
of the conspiracy."(12) To penetrate
such elaborate concealment strategies, prosecutors must have a tool
to convert cartel members into cooperative witnesses, so that prosecutors
can gain access to background information, testimony, and the documents
that otherwise might be destroyed. Amnesty programs are such a tool.

Amnesty programs work by changing the cost/benefit calculation of
cartelization.(13) To do this properly,
an amnesty program requires three elements:

First, there must be severe sanctions for firms and individuals
that do not obtain amnesty -- not only severe as a general matter, but
also severe as a relative matter, in terms of what is lost by not cooperating.
An amnesty program must provide significant benefits as compared with
the alternative strategies of staying in a cartel or withdrawing but
remaining silent. In the United States, the benefits are quite substantial;
for example, successful amnesty applicants receive immunity from federal
criminal antitrust prosecution and, as the result of ACPERA, are required
to pay only single damages in any related private civil lawsuit, as
opposed to the treble damages otherwise available under U.S. law.(14)
To make this element meaningful, the amnesty program must require significant,
material cooperation and must allow prosecutors to terminate amnesty
for noncooperation or for continued participation in the cartel.

Second, there must be a genuine fear of detection. Antitrust
authorities must have a credible threat to discover cartel behavior
even without amnesty applications by cartel members. If firms perceive
that the risk of being caught by antitrust authorities is very small,
stiff maximum penalties will not be sufficient to deter cartel activity
or to cause firms to report their wrongdoing to authorities in exchange
for amnesty. Once that credible threat exists, the threat of being turned
in by one's fellow corporate cartelists will increase. It is also very
helpful to have an individual leniency policy, which creates the potential
for an amnesty race as between a corporation and its own culpable employees.
The real value and measure of the United States Individual Leniency
Program is not in the number of individual applications we receive,
but in the number of corporate applications it generates -- when corporate
management learns that an individual employee has committed cartel conduct,
management takes an uncomfortable risk if it does not apply for amnesty
immediately.

And third, there must be predictability and transparency
to the program. The United States program is set forth in two documents
-- the Corporate Leniency Policy(15)
and the Individual Leniency Policy(16)
-- that allow the program to function almost automatically, which gives
potential applicants a high degree of assurance that, if they take the
risk of coming forward, they will get the reward. Transparency in the
amnesty program has the same benefits as transparency in the entire
enforcement program, as I discuss further below.

An amnesty program or other enforcement practices must not give so
much leniency that the deterrent effect of cartel penalties is diminished.
This is an important principle to keep in mind when evaluating a request
for a reduced fine from a "second-in" cooperator, meaning a cartel member
who is not the first to expose or cooperate against a cartel but who
may still provide valuable additional evidence and assistance. The Antitrust
Division's Deputy for Criminal Enforcement, Scott Hammond, recently
published a presentation entitled Measuring the Value of Second-In
Cooperation,(17) in which he discussed
the factors that go into assigning value to such cooperation. The United
States does not provide absolute fixed discounts for second-in cooperation,
as has been adopted, for example, in Japan; while there are benefits
to the transparency of a fixed-discount approach, Mr. Hammond argues
that those benefits are outweighed by the need for proportionality.
Prosecutors are better served where they have the ability to adjust
sentencing benefits to the actual amount of cooperation offered by second-in
cooperators, which varies widely from case to case and may, in some
cases, have no value at all.

The discussion of second-in cooperation leads me naturally to a discussion
of "Amnesty Plus," which refers to benefits that prosecutors can offer
to a cartel member who discloses previously undetected antitrust offenses,
involving a cartel different from the one that first brought that cartelist
to the prosecutors' attention. Put more simply, Amnesty Plus induces
firms that are already under investigation to clean house and report
violations in other markets. Again, Mr. Hammond makes a strong case
for such a program:

Here is a remarkable statistic: roughly half of the Division's
current international cartel investigations were initiated by evidence
obtained as a result of an investigation of a completely separate
market. Most of the corporate defendants in international cartel cases
are multinational companies selling hundreds of different products.
It will come as no surprise then to learn that the Division's experience
is that if a company is fixing prices in one market, the chances are
good that it is doing so in other markets as well. If an executive
readily meets with competitors to allocate customers, then he or she
has likely done it before in his or her career. And, if you go back
further in time, you will likely find a mentor who taught the colluding
executive the tricks of the trade. Armed with this experience, the
Division has had great success engaging in a strategy of "cartel profiling"
techniques aimed at ferreting out violations that sprout "cartel trees"
- where one investigation will eventually give root to prosecutions
in a half-dozen or more different markets.(18)

Our practice of rolling one investigation into another is well known
in the antitrust community and should strike fear in the heart of cartelists.
Through Amnesty Plus, exposure of a single member of a single cartel
has the potential to bring a series of cartels tumbling down like a
house of cards.

As implemented by the Department of Justice, Amnesty Plus has its
own set of rewards and penalties. As to rewards, the cooperating company
not only receives the benefits of full amnesty for the newly revealed
offense, but also receives a substantial additional discount in its
fine for participation in the first conspiracy. The size of the additional
discount depends on a number of factors, including: (1) the strength
of the evidence provided by the cooperating company in the amnesty product;
(2) the potential significance of the uncovered case, measured in such
terms as the volume of commerce involved, the geographic scope, and
the number of co-conspirator companies and individuals; and (3) the
likelihood that the Division would have uncovered the cartel absent
the self reporting -- for example, if there is little overlap in the
corporate participants involved in the original cartel and the Amnesty
Plus matter, then the credit for the disclosure likely will be greater.
And as to penalties, the Department applies "penalty plus": if a firm
under investigation fails to discover and report a second offense, then
later finds itself negotiating a plea after the second conduct is discovered
by the Division, it should expect significant consequences. If the Division
learns that the company discovered the second offense and simply decided
not to report it when it had a chance to qualify for Amnesty Plus credit,
then the sentencing consequences will be even more severe. Therefore,
companies understand that they cannot afford to remain wilfully ignorant
by limiting the scope of their internal investigations. The risks to
the companies and their executives are too great.

Vigorously Prosecute Obstruction of Justice

As I have mentioned, cartelists are criminals and frequently are adept
at concealment. True to type, many react to an investigation by actively
obstructing the investigations of antitrust prosecutors. The cost/benefit
mindset of the cartelist does not evaporate upon learning of an antitrust
investigation; instead, the cartelist is likely to evaluate the potential
costs of obstruction versus the "benefit" of impeding at least the scope
of any resulting lawsuit. Accordingly, antitrust authorities should
ensure that the cost side of the equation is severe.

In May 2006, the Cartels Working Group of the International Competition
Network released a paper entitled Obstruction of Justice in Cartel
Investigations.(19) Among its recommendations
is that the punishment imposed for impeding a cartel investigation should
be on par with punishment for the original offense. I endorse that view.
Rather than discuss the problem of obstruction in greater detail here,
I commend the report as important reading.

Charge Cartels in Conjunction with Other Offenses

Prosecutors do not hesitate to combine charges in most areas of the
criminal law; for example, they combine embezzlement charges with claims
for illegal wire transfers and evidence destruction, among others. The
same approach is appropriate for cartel offenses. The Division has uncovered
cartel activity in conjunction with violations of laws against fraud,
kickbacks, unfair government contracting, breach of fiduciary duty,
and tax evasion, to name just a few. Antitrust prosecutors should have
the power and the inclination to pursue a cartelist for each and every
criminal violation, both to vindicate such proscriptions on their own
merits and to induce cooperation against other members of the cartel.

Leads developed through pursuing a collateral offense often lead to
the exposure of a cartel offense, or vice versa. An effective enforcer
will not ignore offenses simply because those offenses do not have the
word "antitrust" in the title.

Provide Transparency

Antitrust enforcers should maximize the transparency and predictability
of their enforcement policies. Informing market participants of the
rules and likely consequences provides a critical foundation for effective
deterrence. Business need to know where the line has been drawn so that
they have an opportunity to conform their behavior to the law. Further,
as discussed above, the success of an amnesty program depends on potential
applicants having confidence that they will obtain the benefits of amnesty
if they comply with a set of clear requirements. Similar considerations
apply when negotiating plea agreements with defendants outside an amnesty
program. The benefits of transparency reduce to a simple formula: in
the United States's experience, cooperating parties come forward in
direct proportion to the predictability and certainty of their treatment
following cooperation.

It is generally advisable to establish transparent standards for all
aspects of the criminal enforcement process, including the opening of
hard core cartel investigations, the decision whether to bring charges,
and the calculating and imposing of sanctions. Providing such a roadmap
gives clear signals to industry. It also makes prosecutors' jobs easier:
not only do they have a clear procedure to follow internally, they also
have something to point to when defendants seek unduly favorable settlements
or accuse prosecutors of unfairness.

Publicize Enforcement Efforts

Finally, it is important for antitrust enforcers to publicize their
anti-cartel efforts. Deterrence is preferable to prosecution, whether
as a matter of marketplace effects or of enforcement resources. Deterrence
requires that violators learn the penalties they face and the rewards
available if they confess. The goal is to destabilize cartels through
the fear of harsh penalties, the incentive to cooperate and expose co-conspirators,
and the recognition that enforcers are predictable and relentless in
their approach.

Over time, publicizing enforcement efforts can even change the norm
of what is acceptable or tolerated in the marketplace. A chief difficulty
faced by any enforcement program -- antitrust or otherwise -- is the
tendency of deviant behavior, left unchecked, to become the norm. If
criminal activity is presented as inevitable, some will simply accept
it as a cost of doing business and a few will even seek to participate,
seeing an opportunity for a share of anticompetitive gains. Aggressive
enforcement combined with appropriate publicity helps break this cycle,
reminding market participants that they do not have to tolerate the
criminals in their midst. If publicity is particularly effective, it
can lead both to more complaints and to complaints that are more actionable,
as cartel victims and amnesty applicants learn to give enforcers the
specific information necessary to make a case. And finally, let us not
forget the reality that criminal anti-cartel enforcement is a government
function, and government resources are always scarce. Antitrust enforcers
should not be shy about publicizing the fact that anti-cartel enforcement
is, on a dollar-for-dollar basis, among the best uses of law enforcement
resources from the standpoint of consumer welfare.

III. Conclusion

The ultimate goal of cartel enforcement is deterrence, and deterrence
only works when consequences are real. To effectively deter cartels,
antitrust enforcers must aggressively and predictably prosecute cartelists
and use the full range of weapons in the enforcement arsenal, from fines
to jail time to restrictions on international movement. All of these
consequences affect the cost/benefit analysis of cartels, whether as
a matter of the corporate bottom line or of the individuals who know
they may serve time in jail. It is gratifying to us that some cartels
avoid violating the law in the United States specifically because of
our enforcement policies. This phenomenon illustrates that aggressive
cartel enforcement can effectively deter such collusion. Further, as
the number of countries with aggressive cartel enforcement programs
increases, the effectiveness of each individual program should increase
as well. The cartels will have fewer easy targets, a lower expected
profit, a greater likelihood of detection, and a higher expected sanction.
Accordingly, I encourage the international antitrust community to continue
its efforts to expand and improve global cartel enforcement.

FOOTNOTES

1. Thomas O. Barnett is the Assistant Attorney
General for Antitrust at the United States Department of Justice. Prior
to his confirmation to that position in February 2006, he served the
Department as Deputy Assistant Attorney General or Acting Assistant
Attorney General since April 2004. Before joining the Department, Mr.
Barnett was a partner at the law firm of Covington & Burling in
Washington, D.C., where he served as vice chair of the firm's Antitrust
and Consumer Protection practice group.

3. E.g., R. Hewitt Pate, Ass't Att'y Gen.,
U.S. Dep't of Justice, Securing the Benefits of Global Competition,
address before the Tokyo America Center 4-6 (September 10, 2004), at
http://www.usdoj.gov/atr/public/speeches/205389.pdf; see also
Thomas O. Barnett, Deputy Ass't Att'y Gen., U.S. Dep't of Justice,
Antitrust Enforcement Priorities: a Year in Review, address before the
Fall Forum of the ABA Section of Antitrust Law 2-3 (November 19, 2004),
at http://www.usdoj.gov/atr/public/speeches/206455.pdf.

4. And there is a corresponding benefit to having
our civil enforcers specialize in their areas of greatest interest and
expertise -- we have a Networks & Technology civil section, a Telecommunications
& Media civil section, and an Economic Analysis Group, to name just
three of our other enforcement components. A list and brief description
of the Antitrust Division's sections and offices can be found at http://www.usdoj.gov/atr/sections.htm.

5. Cartels often use extreme measures to conceal
their existence. The Division has uncovered cover-ups ranging from the
creation of bogus trade associations, the use of code names, and sophisticated
ruses to keep general counsel in the dark, to hiding incriminating evidence
in the attic of a cartel member's grandparent's home, wholesale document
destruction, and witness tampering after an investigation begins. Most
of these were features of the lysine cartel, which the Division prosecuted
in the 1990s. See generally http://www.usdoj.gov/atr/cases/archer0.htm;
http://www.usdoj.gov/atr/public/press_releases/1996/0988.pdf.

6. These features also help to persuade courts
to impose significant sanctions on cartelists once they have been convicted.

7. See generally Organization for Economic
Cooperation and Development, 2002 Report on the Nature and Impact of
Hard Core Cartels and Sanctions Against Cartels Under National Competition
Laws, at http://www.oecd.org/dataoecd/16/20/2081831.pdf, Annex
A (collecting estimates of consumer harm from numerous cartels). For
example, the consumer harm from the citric acid cartel in the United
States alone has been estimated at $100 million.